Dan Zwirn Prepares To Profit From Coming "Tidal Wave Of Consumer Debt Charge-Offs"
The coming wave of consumer debt defaults, from the subprime auto market to credit cards and student loans, has been a frequent topic for us over the past several months...here are just a couple of examples:
Of course, while it's relatively easy to recognize the signs of debt bubbles (deteriorating underwriting standards, rising delinquencies, etc.) it's almost impossible to know precisely when, where or how they will pop...as anyone who lived through the 'great recession' can tell you. Which is precisely why Daniel Zwirn (formerly of the now defunct DB Zwirn hedge fund) and currently of Arena Investors, says he's taking steps today to position his fund to invest in the inevitable "tidal wave of consumer charge-offs" when the various consumer debt bubbles do finally burst. Per Bloomberg:
- Carmageddon: Deep Subprime Auto Delinquencies Spike To 10-Year Highs
- New Warning Signs Emerge For Subprime Auto Securitizations
- Is The Bubble About To Burst? Student-Loan Delinquency Rates Rise For First Time In Years
- Baby Boomers Borrowed $100BN In Student Loans For Their Children And Now Defaults Are Soaring
“We’re about to hit a tidal wave of consumer charge-off activity,” Zwirn says in an interview. “We’re working on positioning ourselves to buy a lot of that. That whole defaulted subprime consumer finance ecosystem is going to be very interesting.”
Zwirn, whose firm is based in New York, sees opportunities in the more than $1 trillion of U.S. student loan debt.Subprime auto market has shown “cracks for an extended period of time and those are getting worse,” Zwirn says. “A lot of that has been masked by a blazing, white-hot securitization issuance market. We think that will offer opportunities as collateral performance deteriorates.”“Many people who are buyers of those tradeable corporate, ABS and mortgage securities across the board will close their eyes,” Zwirn says. “As long as the rating is there, they’ll buy it.”As we pointed out a couple of weeks ago, one potential catalyst, at least for the auto loan market, may come in the form of private equity firms throwing in the towel on roughly $3 billion worth of subprime auto bets they made in the wake of the 'great recession' that have made no money over the past eight years.
A Perella Weinberg Partners fund has been sitting on an IPO of Flagship Credit Acceptance for two years as bad loan write-offs push it into the red. Blackstone Group LP has struggled to make Exeter Finance profitable, despite sinking almost a half-billion dollars into the lender since 2011 and shaking up the C-suite multiple times. And Wall Street bankers in private say others would love to cash out too, but there’s currently no market for such exits.
Since the turn of the decade, buyout firms, hedge funds and other private investors have staked at least $3 billion on non-bank auto lenders, according to Colonnade. Among PE firms, everyone from Blackstone and KKR & Co. to Lee Equity Partners, Altamont Capital and CIVC Partners waded in.
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